Flows tell you where capital is heading; breadth tells you how many names are rowing with it. Combine them, and you get a cleaner timing signal than either alone. This two-switch system uses 13-week net creations (as % of AUM) and advancing/declining breadth to confirm sector rotations and define exits before the tape turns.
The Two Switches
Switch 1: Flow (13-week creations/redemptions)
Normalize by AUM: You’re measuring conviction, not absolute dollars.
“On” when the 13-week trend is positive and rising. “Off” when it flattens or turns negative for two consecutive weeks.
Switch 2: Breadth (advancers/decliners)
Track % of constituents above their 50-day and 200-day MAs, plus daily adv/dec.
“On” when both the 50-day and 200-day metrics are >50% and improving. “Off” when either slips <50% for a week.
Entry Rules (both switches must be ON)
Sector ETF flow trend positive and accelerating (i.e., +3–5% of AUM over 13 weeks).
Breadth improvement confirmed: >50% of Components reclaim 50-day and 200-day.
Price above a rising 50-day: Buy the sector ETF (or top-quartile constituents by RS).
Exit Rules (any one triggers)
Flow break: Two redemptions weeks and 13-week slope turns down.
Breadth break: % Above 50-day falls <45% for five sessions.
Price fail: ETF closes below 50-day and breadth isn’t improving within 3 days.
Position Sizing & Risk
Start 50% when both switches turn on. Add the other 50% after a constructive pullback with breadth >55%.
Use ATR-based stops or a rolling low since entry. Never widen stops on flow deterioration.
Why This Works
Flows capture allocators’ decisions (rebalancing, model adjustments, new demand). Breadth prevents a few mega-caps from faking momentum and forces confirmation across the deck. Together they reduce false positives, shorten time-to-pain on losers, and keep you in trends that broaden.
Bottom Line
Trade rotations when money and participation align. Let flows find the wave. Let breadth tell you it’s ridable.
